Property, intangible

a blog about ownership of intellectual property rights and its licensing

I Own It When I See It

How many people can own knowledge?

Banks give merchants a line of credit for credit card transactions. The banks use independent service organizations (ISOs) to sign up merchants for the bank’s services and to provide the equipment needed to process the transactions. Merchants submit their sales to a payment processor, which transmits the information to the bank. The bank remits payment, minus commission, to the merchant. The retained commission is split between the bank, the ISO, and the payment processor.

There’s also a market for the future credit card receivables. Companies – in this case, co-defendant Fast Capital LLC – buy the future credit card receivables at a discount from merchants in exchange for cash. The bank remits the payment to the receivables purchaser, which takes its commission and pays the merchant.

Fast Capital contracted with plaintiff d/b/a Merchant Credit to develop leads for its services, in exchange for a portion of the commission. In the complaint, Merchant Credit claimed that Goldman Sachs controlled Fast Capital, and gave the Merchant Credit leads to Merchant Credit’s competitors, depriving Merchant Credit of the commission. The complaint alleged the expected breach of contract and tortious interference claims, as well as misappropriation of trade secret and unfair competition claims.

Merchant Credit claimed that the leads were its property; Fast Capital claimed that they were not. The court reviewed the various provisions of the contract and decided that, interpreting the contract as a whole, the merchant leads belonged to Fast Capital.

But Fast Capital was not off the hook so fast; one doesn’t have to own a trade secret to state a claim for misappropriation of trade secret:

Although the holder of a trade secret may be considered as having a property right, “[t]he inherent nature of a trade secret limits the usefulness of an analogy to property in determining the elements of a trade-secret misappropriation claim.” DTM Research, L.L.C. [v. AT & T Corp., 245 F.3d 327, 331 (4th Cir.2001)]. The court in DTM Research explained:

The conceptual difficulty arises from any assumption that knowledge can be owned as property. The “proprietary aspect” of a trade secret flows, not from the knowledge itself, but from its secrecy. It is the secret aspect of the knowledge that provides value to the person having the knowledge . . . . While the information forming the basis of a trade secret can be transferred, as with personal property, its continuing secrecy provides the value, and any general disclosure destroys the value. As a consequence, one “owns” a trade secret when one knows of it, as long as it remains a secret. Thus, one who possesses non-disclosed knowledge may demand remedies . . . against those who “misappropriate” the knowledge.

Under these precedents, the relevant inquiry is not whether Merchant Credit “owned” the merchant information, but whether Merchant Credit knew the merchant information, the information was secret, and Merchant Credit took measures to keep the information secret throughout the parties’ dealings.

Merchant Credit, however, had not kept the secret. The agreement stated that the leads were not “confidential information,” and that Fast Capital could assign the agreements with the merchants without Merchant Credit’s consent, exactly what it had done. Merchant Credit failed to state a claim for misappropriation of trade secret, as well as for a unfair competition on the same facts.

Fast Capital Marketing, LLC v. Fast Capital LLC, Civ. No. H-08-2142, 2008 WL 6381308 (S.D. Tex. Dec. 24, 2008).

© 2009 Pamela Chestek

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